Etihad agrees to cut number of directors on Jet board

July 26, 2013 15:31 IST

Abu Dhabi-based Etihad Airlines has agreed to halve the number of directors on the Jet Airways Board to two posts under the Rs 2,058 crore (Rs 20.58 billion) deal, giving the Indian promoters 'effective control' of the carrier.

This, alongwith other details of an amended shareholding agreement (SHA), has been forwarded to Finance Ministry ahead of the FIPB meeting on July 29 to consider the proposal.

As per the revised shareholding agreement, Etihad would have two directors on the board after the deal, as against the earlier proposal of four directors in the 10-member board, sources said.

This seeks to address the concerns of Foreign Investment Promotion Board (FIPB) and market regulator Sebi with regard to effective control after the foreign direct investment, which is the largest FDI in the aviation space so far.

The agreement says that major decisions, including appointment of independent directors and the chairman and vice-chairman will now be taken on the basis of majority of votes.

However, there will be no change in the shareholding pattern with Etihad picking up 24 per cent, key promoter Naresh Goyal holding 51 per cent and the remaining 25 per cent with others, including institutions and individuals.

Besides Finance Ministry, the Department of Industrial Policy and Promotion (DIPP) would be scrutinising the revised proposal over the weekend so that a firm view could be taken at the meeting on Monday.

Shares of Jet Airways jumped 19.36 per cent to Rs 402 in afternoon trade on the BSE. An NRI can hold up to 100 per cent equity in aviation companies, sources said adding the FIPB would have to satisfy itself about the NRI status of Goyal before giving its nod to the deal.

The FIPB last month deferred a decision on Jet's proposal to sell a 24 per cent stake to Etihad. "Jet have given revised shareholding agreement to the Finance Ministry and we are examining it. The matter will come before FIPB on July 29," a finance ministry official said.

The FIPB has also received comments of market regulator Sebi last week with regard to effective control of the airline following the deal.

Sebi had earlier objected to the proposed presence of four directors of Etihad on Jet board observing that the agreement would have allowed Eithad to have a say in all major decision, including appointment of independent directors.

Besides, the Revenue Department was looking deeper into the proposed deal to identify the beneficial owners and check whether it is structured in a way to evade taxes.